Uganda’s recent aggressive push in the oil sector, marked by the drilling of 74 new oil wells in its Tilenga and Kingfisher production areas, could stir both excitement and concern in Kenya. This development, ahead of Uganda’s planned commercial oil production next year, brings into focus the intricate economic ties between the two East African nations.
Kenya has long been Uganda’s gateway for importing petroleum products, a relationship that injects billions into the Kenyan economy annually. Uganda, landlocked and reliant on Kenya’s Mombasa port, imports an average of 2.5 billion litres of petroleum each year, valued at around $2 billion (Ksh9.075 billion).
This trade, largely managed by the Kenya Pipeline Company (KPC) and local oil firms, accounts for a significant portion of Kenya’s revenue from its northern neighbour.
The announcement of Uganda’s latest drilling achievement was made by Ruth Nankabirwa, Uganda’s Minister for Energy and Mineral Development, during a press briefing in Kampala on Thursday, August 22.
She revealed that these wells, drilled in the Tilenga and Kingfisher regions, are part of Uganda’s broader strategy to harness its oil reserves. The minister noted that 63 out of the planned 426 wells in the Tilenga project have been completed, with positive hydrocarbon shows, signifying promising prospects for the country’s oil output.
This accelerated drilling activity follows Uganda’s final investment decision in 2022, in partnership with TotalEnergies E&P Uganda, China National Offshore Oil Company (CNOOC) Uganda Limited, and Uganda National Oil Company. These partners are driving the development of upstream projects, including the Tilenga and Kingfisher areas, the East African Crude Oil Pipeline (EACOP), and the Uganda Refinery Project.
The EACOP, a 1,443-kilometre pipeline, is particularly crucial, as it will transport crude oil from Uganda’s Hoima District to the Tanzanian coast at Tanga.
While this oil boom appears to be a win for Uganda, Kenya could also find itself benefiting from its neighbour’s fortunes. With Uganda’s oil refinery project still under construction, the Mombasa port remains a critical hub for Uganda’s oil exports.
Furthermore, a recently signed agreement between Nairobi and Kampala could extend Kenya’s role in the oil supply chain. The deal involves the extension of the oil pipeline from Eldoret to Uganda, allowing Kampala to import refined petroleum products directly through Nairobi, further solidifying trade relations between the two countries.
President William Ruto, speaking during a visit by Ugandan President Yoweri Museveni to Nairobi, this year, pointed to the significance of this agreement. He hailed it as a solution to the logistical challenges Uganda has faced in the past, predicting that it would strengthen the economic ties between the two nations.
However, Uganda’s burgeoning oil industry is not without its challenges. The country has already seen a substantial increase in oil-related revenue, with the Petroleum Fund Report indicating a 54 per cent rise in oil tax receipts in the fiscal year ending June 2023.
This financial windfall, driven by increased drilling and exploration activities, could shift regional dynamics, potentially creating competitive pressures on Kenya’s oil sector.
Despite these developments, Uganda’s oil infrastructure is still in its infancy. The Tilenga Industrial Area, which will house crucial processing and support facilities, is nearly complete, and the Kingfisher oil field has made significant progress with nine out of the 11 required wells already drilled. Yet, the full impact of Uganda’s oil industry on the regional economy remains to be seen.
Kenya, for its part, will need to navigate this evolving landscape carefully. While Uganda’s oil expansion could offer new opportunities for Kenyan firms and infrastructure, it also poses the risk of shifting trade patterns and altering the balance of economic power in East Africa.
